A firm with a capital structure with a large proportion of fixed costs will have a higher degree of operating leverage , while a company with a large amount of variable costs will have a lower degree of operating leverage.

Question

Quizplus · Accepted Answer

This statement is true. Operating leverage measures how much of a company's costs are fixed vs. variable, and a higher proportion of fixed costs means that a company's profits will be more sensitive to changes in revenue. Conversely, a higher proportion of variable costs means that a company's profits will be less sensitive to changes in revenue.

A Firm with a Capital Structure with a Large Proportion